Demystifying Commercial Lease Agreements: What You Need to Know

Demystifying Commercial Lease Agreements: What You Need to Know

The number of commercial buildings has increased by 56% since 1979. As of 2018, there were 5.9 million commercial buildings in the U.S.

With so many commercial buildings available, it's important that you take care when leasing your own commercial property to businesses. It's essential that you take the right approach and ensure that you fully understand the process.

In this guide, we'll demystify the commercial lease agreement and tell you everything you need to know about them.

What Is a Commercial Lease Agreement?

A commercial lease is a contract that is used by a tenant and landlord of a commercial property.

The lease is used to outline the requirements and expectations of both parties. It will be specific to a particular landlord-tenant relationship. It outlines the permissions that a tenant has for using a property and for doing business on it.

Keep in mind that all commercial leases are different. Each will be crafted to meet the specific needs of the landlord and the commercial tenant.

It's important to note that there are several different types of commercial lease agreements and each is a little different. Here are the three main types of commercial lease agreements:

  • Net Lease: In one of these lease variations, a tenant will pay some or all of the expenses aside from rent
  • Gross Lease: A lease type in which the tenant will pay a set amount and the landlord will cover extra expenses
  • Modified Gross Lease: A lease type in which both the tenant and landlord will share responsibility for paying extra property expenses

Although leases are used with residential rentals as well, there are some big differences with commercial leases.

Commercial leases are usually more complex and will tend to favor the landlord. They're usually longer when compared to residential leases and lease enforcement is stricter. There are also typically more legal protections offered to residential renters than commercial tenants.

Parts of a Commercial Lease Agreement

There are a few things that every commercial lease agreement should include. This will help ensure that it's fully valid and can be enforced.

Some of the main things that a commercial lease should outline include parties involved, property details, lease length, rent amount, and security deposit. Also important is for a commercial lease agreement to outline the details about exclusive and permitted use. It should show the restrictions of the property as well.

A commercial lease should also outline extra costs as well. This category includes expenses aside from rent and security deposit. This includes property taxes, insurance, and property maintenance costs.

Understanding who will pay for these costs is an essential part of a lease and can help ensure that the landlord and the tenant are on the same page.

Using a Commercial Lease Agreement

Whether you're a landlord or a business owner, you need to understand how a commercial lease agreement works. A commercial lease agreement outlines all of the most important details of a landlord-tenant relationship and is essential for staying on the same page.

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